Should my loved ones get a reverse mortgage? What every family should know
What Every Family Should Know About Reverse Mortgages
The older we get, the more life becomes about having difficult conversations—about health, finances, end-of-life decisions, and the legacy to be left for future generations. Often, one of these emotional discussions is about the family home. Will mom and dad be able to continue living there? Do they have enough saved for a comfortable, safe and secure retirement? What is the strategy for financing long-term care? Can you afford to help out without impacting your own finances? Home equity is the largest store of savings for most households entering retirement, yet it’s typically an underutilized retirement asset. 1 So what’s the best way to leverage home equity to be better financially prepared in retirement?
We created this guide to help families better understand how reverse mortgages work, and the role they can play in smart financial planning strategies for not only older homeowners, but also their adult children. It also addresses common questions and concerns that adult children have as they assist their parents in the decision-making process.
HHHHH “ We are so thankful we did a reverse mortgage. It is a relief to knowwe have money available for any unexpected bills or to use ‘just because’. ” —Diane C., via Trustpilot
Questions? Contact your local Reverse Mortgage Funding Loan Specialist today or call 800.214.1265
1 Steven A. Sass, “Is Home Equity an Underutilized Retirement Asset?”, Center for Retirement Research at Boston College, March 2017, Number 17-6.
1 | What Every Family Should Know
Understanding the Basics
What is a reversemortgage?
It’s a versatile home equity loan created specifically for older homeowners and homebuyers, allowing them to turn part of the equity they’ve built up in their home into funds they can use as they choose. A reverse mortgage is a lot like a mortgage you’d get from a bank or credit union. However there are key differences that make reverse mortgages better suited for people who are retired or looking ahead to retirement. One major advantage is its flexible repayment feature, which allows the borrower to make any size monthly mortgage payment, or even none at all.* Most reverse mortgages are FHA-insured** Home Equity Conversion Mortgages (HECMs). The typical reverse mortgage candidate is at least 62 years old, has 50% or greater equity in their home, and wants to:
n Reduce or eliminate monthly mortgage payments n Consolidate other debt, such as credit card balances n Make home improvements n Establish a line of credit for unplanned expenses With a HECM, the borrower can choose to take their funds as a line of credit, lump sum, monthly advances, or a combination of these. † In addition to HECMs, some lenders have also introduced
proprietary loan products to accommodate a broader array of borrowers. For example, Reverse Mortgage Funding LLC (RMF) offers Equity Elite ® , which is available to those as young as 60; ‡ it’s designed specifically for borrowers who want low up-front costs, own or want to purchase a condominium, or those looking for maximum access to proceeds. See page 4 for additional details.
*As with any mortgage, the borrower must meet their loan obligations, keeping current with property taxes, insurance and maintenance. **This material has not been reviewed, approved or issued by HUD, FHA or any government agency. The company is not affiliated with or acting on behalf of or at the direction of HUD/FHA or any other government agency. † Borrowers who elect a fixed rate loan will receive a single disbursement lump sum payment. Other payment options are available only for adjustable rate mortgages. ‡ Not applicable in all states; some states may impose a higher age requirement. Visit www.reversefunding.com/equity-elite for details.
Understanding the Basics (continued) What are the costs involved?
Except for a fee for required reverse mortgage counseling, most of the fees can be financed with the loan, so out-of-pocket costs are minimal. Or, the borrower can choose to pay them out of pocket. The costs are added to the loan amount (“principal”) and paid along with the accrued interest when the loan becomes due. Depending on the loan option chosen, there may be an origination fee, closing costs, a mortgage insurance premium (required for HECM loans) and a monthly servicing fee. However, there are also options (such as Equity Elite ® Zero that offers a lender credit to be applied towards most closing costs.* Speak to your RMF loan specialist for more information.
How is a reversemortgage loan repaid?
It must be repaid when the last surviving borrower sells the home, moves out, or passes away. Typically, the home is sold to repay the loan, and the homeowner or their heirs keep any remaining equity. If the homeowner or family members wish to keep the property, the loan can be repaid using a traditional mortgage or other funds.
If the loan balance exceeds the home’s valuewhenmy parents pass, am I responsible?
No. Reverse mortgages have a non-recourse feature: Neither the borrower nor their heirs will have to pay more than the loan balance or the appraised value of the home at the time the loan is repaid, whichever is less. When the last surviving homeowner passes away, the loan must be repaid. If you are the heir, you can satisfy the debt by either selling the home, or purchasing the property for 95 percent of its appraised value. If the home depreciates in value to the point that the balance owed exceeds the value of the home, you will not be responsible for repaying more than what the home is worth at the time the loan is repaid.
*With this pricing option, borrower receives a lender credit covering nearly all closing costs. There is a non-refundable independent counseling fee of approximately $125 on average, which the borrower pays directly to the counseling agency. Terms and conditions apply. Not available in all states.
3 | What Every Family Should Know
What are the loan obligations?
It is extremely important to RMF and the entire reverse mortgage industry that borrowers and their families understand their obligations. As with any mortgage, the borrower has certain obligations under the loan: 1 . Keep the home in good condition 2 . Keep current with property taxes and insurance 3 . And with a reverse mortgage, the borrower(s) must live in the home as the primary residence (there is an annual certification) Failure to meet these loan obligations can lead to the loan becoming due and payable. The details of the borrower obligations are discussed during an independent counseling session, which is required before your application can be processed. The counselor’s responsibility is to certify that the prospective borrower understands the loan terms and conditions. At the conclusion of a successful session, the counselor will issue a counseling certificate. Without the certificate, the lender cannot move forward with the loan application.
Reverse Mortgage Funding LLC (RMF) created the Equity Elite ® reverse mortgage option with the mission to fill in the gaps where the FHA’s Home Equity Conversion (HECM) program is not competitive for—or available to—certain customers. We thought it was important to offer a product that: n Offers lower up-front costs n Enables more condominiums to qualify n Helps those with higher-value homes access additional equity n Is available to borrowers as young as 60. † For additional information, contact your RMF Loan Specialist.
† Not applicable in all states; some states may impose a higher age requirement. Visit www.reversefunding.com/equity-elite for details
Exploring Your Family’s Options Are there alternatives to reverse mortgages?
Yes, many families look at refinancing with a traditional mortgage loan or a Home Equity Line of Credit (HELOC). However, for older homeowners, in many cases a reverse mortgage is a more suitable option. That’s because it’s designed to be sustainable for those on a fixed or reduced income—be it now, or in the future. Which financing option is right for your family?
Home Equity Line of Credit (HELOC)
Converts home equity into loan funds? Age-based lending How much can I borrow? Flexible repayment feature? Minimummonthly payment required? Non-recourse feature (You’ll never owe more than the home is worth when the loan is repaid) Income qualifications Can be used to buy a home?
YES NO No set amount
NO Stricter NO
What if there’s an existing mortgage on the home, or an outstanding home equity loan? The homeowner may still be eligible. In fact, many people refinance their existing mortgage(s) with a reverse mortgage in order to substantially reduce their monthly bills. (As with any mortgage, the borrower must continue to keep current with property taxes, insurance and maintenance as part of their loan obligations.) Proceeds from the reverse mortgage would first be used to pay off any existing mortgage(s). *Equity Elite ® is currently available only for eligible properties in select states. Please contact your loan originator to see if it is currently available in your state. † Not applicable in all states; some states may impose a higher age requirement. Visit www.reversefunding.com/ equity-elite for details. **As with any mortgage, homeowners must meet loan obligations, keeping current with property taxes, insurance and maintenance. § Not applicable in all states; MA imposes a maximum loan amount of $1.5MM. Visit www.reversefunding.com/ equity-elite for details.
5 | What Every Family Should Know
Home Equity Conversion Mortgage (HECM)
Equity Elite ® *
YES 62 or older Less than $822,375
YES NO No set amount
YES 60 or older † Up to $4 million §
YES More lenient YES
YES More lenient YES
NO Stricter YES
HHHHH “ I ama retired certified financial planner practitioner, and I believe that I have set up our finances so that we probablywon’t need to tap this reversemortgage in the future. However, if a total disaster strikes…it is nice to know that we have a fallback planwherewe can easily tap the equity in our home if we feel we need to….I honestly cannot seewhy anyonewould not want to take advantage of this valuable tool to protect their financial security. ” —Gil A., via Trustpilot
Common Family Concerns Will the bank own the home?
No. This is the #1 misconception. In fact, the borrower holds the title to the home. As with any mortgage, the borrower must meet their loan obligations, keeping current with property taxes, insurance and maintenance. Just like a traditional mortgage, failure to meet loan obligations could result in property foreclosure. That is why we clearly define the terms and set the borrower’s expectations.
Isn’t a reverse mortgage a loan of last resort?
Recent product advances have made reverse mortgages more attractive, and academic researchers and financial advisors have developed effective strategies for using a reverse mortgage as part of an overall retirement plan. Just as there are loans specifically for students and for first-time homebuyers, a reverse mortgage is another type of “life stage” loan. Increased longevity and rising healthcare costs have also changed the retirement landscape. The ability to access home equity through a reverse mortgage can provide tremendous peace of mind for families who want their older loved ones to live safely and comfortably as long as possible.
“ The reverse mortgage option should be viewed as a method for responsible retirees to create liquidity from an otherwise illiquid asset, which in turn can create new options that potentially support a more efficient retirement income strategy, such as more spending and/or more legacy. ” —Wade D. Pfau, Ph.D., CFA, “The New Case for Reverse Mortgages,” The Wall Street Journal
7 | What Every Family Should Know
What about our inheritance?
Many older homeowners choose to live frugally so that they’re able to leave their house to their children. Meanwhile, adult children may want their parents to live more comfortably and not worry so much about stretching their funds to cover mortgage payments, healthcare costs, or other living expenses. That’s why it’s important to have a candid conversation about finances sooner rather than later. Also, keep in mind that when the home is sold, once the loan is repaid any remaining equity belongs to the homeowners or their heirs.
What protections are there for borrowers and their families?
Reverse mortgages come with built-in safeguards to help ensure borrowers are making wise choices. These include: Financial assessment. All reverse mortgage lenders are required to conduct a financial assessment to ensure the borrower has adequate cash flow to pay ongoing costs, such as property taxes and homeowners insurance, over the life of the loan. Borrowers must provide documentation, such as tax returns and bank
account statements, for all sources of income. Mandatory loan counseling by an independent, FHA-approved counselor . As part of the loan process, each potential borrower must meet with an independent, FHA-approved * counselor to objectively ensure that they understand the reverse mortgage process, what it entails, the specific program’s details, and the individual terms of their loan.
Non-recourse feature . Borrowers will never owe more than the home is worth when the loan is repaid. No matter how large the loan balance, borrowers (or their heirs) will never have to pay more than the total debt or the appraised value of the home at the time the loan is repaid, whichever is less; and no assets other than the home must be used to repay the debt. Borrowing limits . To help their home equity last as long as possible, HECM borrowers are limited in the amount of funds they can access at closing and during the first 12 months of the loan. Equity Elite ® is structured differently. Please reach out to your RMF loan specialist for details.
*This material has not been reviewed, approved or issued by HUD, FHA or any government agency. The company is not affiliated with or acting on behalf of or at the direction of HUD/FHA or any other government agency.
How to Choose a Lender For most people, a mortgage is one of the biggest financial commitments they’ll ever make. So it’s important to do your homework and find a lender that makes you feel informed, confident and comfortable in your decision-making. Asking probing questions—and hearing straightforward, honest answers—will help your family feel you’re heading down the right path in securing a comfortable retirement for your parents or loved ones. If you work with a financial advisor, bring them into the process.
HHHHH “ ReverseMortgage Funding is a caring and knowledgeable company. I was so happy that I chose to work with themover all the other companies that were callingme. They were not pushy and they answered all my questions and addressedmy concerns immediately. ” —Diane C., via Trustpilot
RMF PRICE MATCH PROGRAM
RMF is committed to delivering a great product and great pricing. That’s why we created our Price Match program: If we are unable to match or beat a competitor’s pricing, we’ll give you a $1,000 gift card.
Price Match Program is subject to Reverse Mortgage Funding’s LLC right to rescind or modify the terms of this offer without prior notice as well as additional terms located at www.reversefunding.com/price-match-terms-of-use-and-promotional-rules.
HHHHH “ Our honest opinion is that ReverseMortgage Funding provided a friendly, efficient and very competent experience all the way around! We have had decades of experience buying, refinancing and selling houses....and RMF is right up there with the best…if not The Best…experience amongst all of them!! ” —David H., via Trustpilot
9 | What Every Family Should Know
About Reverse Mortgage Funding Reverse Mortgage Funding LLC (RMF) is one of the nation’s leading reverse mortgage lenders—in fact, that’s our only line of business. We’re dedicated to helping homeowners retire more freely, so they can live the lifestyle they envisioned in the comfort of their own homes.
As a direct lender, we have certain pricing advantages and can pass the savings on to our customers. We offer a wide range of loan options to suit the diverse needs of older homeowners and homebuyers, including our innovative Equity Elite ® product for those as young as 60.* At RMF, we do things differently than other lenders: We provide an experience that’s tailored to each individual. A local, licensed loan specialists can come to your home (or another location of your choice) to sit down and talk with you and your family, explain everything, answer all your questions, and give you straightforward guidance that’s based on your family’s specific needs and concerns. Headquartered in New Jersey, RMF has corporate locations in New York, California and Michigan, and field offices throughout the U.S.
CUSTOMER FOR LIFE Commitment
We’re with you every step of the way with personalized, ongoing service—from our first conversation on day one, throughout the entire loan process, and even after closing. We not only make loans, but after closing we service and maintain long-term relationships with our customers. We’re committed to ensuring an optimal experience, and we’re here for our borrowers throughout the life of the loan. †
We’re proud to have continually earned high praise from our customers:
4.7-star score on Trustpilot 2
98% customer satisfaction rating 1
Customer Satisfaction ★
4.8 out of 5 onLending Tree
Accredited by the Better Business Bureau 4
4.8 out of 5 stars on LendingTree³
Speak to your local RMF Loan Specialist or call 800.214.1265
*Not applicable in all states; some states may impose a higher age requirement. Visit www.reversefunding.com/equity-elite for details. † RMF’s Customer for Life Commitment program is subject to change or cancellation at any time and without notice. 1 Source: RMF customer satisfaction survey, January 2021; 2 Source: Trustpilot, as of March 2021; 3 Source: LendingTree Ratings and Reviews, as of March 2021; 4 Better Business Bureau, as of March 2021.
HHHHH “ Best decision I have ever made. The folks at RMF were truly exceptional in the processing of the loan. Made it painless. Getting a reverse mortgage is givingme andmy wife the extra income to enjoy our retirement! ” —Emmerick S., via Trustpilot
4.8 out of 5 onLending Tree
Customer Satisfaction ★
This material has not been reviewed, approved or issued by HUD, FHA or any government agency. The company is not affiliated with or acting on behalf of or at the direction of HUD/FHA or any other government agency. Equity Elite Reverse Mortgage (“Equity Elite”) is Reverse Mortgage Funding LLC’s proprietary loan program, and it is not affiliated with the Home Equity Conversion Mortgage (HECM) loan program, which is insured by FHA. Equity Elite is available to qualified borrowers who also may be eligible for HUD, FHA’s HECM program or are seeking loan proceeds that are higher than HUD, FHA’s HECM program limit. Equity Elite currently is available only for eligible properties in select states. Please contact your loan originator to see if it is currently available in your state. Upon a maturity event, any non-borrowing individuals with an ownership interest in the property, including non-borrowing spouses, will have a short period of time (for example, 30 days from a due and payable letter or an alternate time specified by the loan servicer if extensions are available under the circumstances) to purchase the property from the estate or, if the non-borrower inherits the property, pay the loan in full using any sources of funds available to them. Any non-borrowing individual, including a non-borrowing spouse, should have a plan to pay off an Equity Elite reverse mortgage upon the borrower’s death or any other maturity event. If the non-borrower is unwilling or unable to purchase the property or pay the loan in full, there is no protection for the non-borrower (including a non-borrower spouse) to maintain an interest in the home or to continue residing in the home past the maturity event and the non-borrower may be evicted upon foreclosure . The FHA HECM program has protections in place for certain non-borrowing parties, so a reverse mortgage applicant with certain non-borrowing parties should strongly consider a FHA-insured HECM loan (see HECM guidelines or ask an RMF representative for details). Under the Equity Elite reverse mortgage loan program, a maturity and/or default event occurs when the last surviving borrower no longer lives in the home as his or her primary residence for at least 12 months, the property charges (including taxes, insurance, or any other property charges) are not paid, required repairs are not completed or the property is not maintained, or any other maturity and/or default event, as specified in the Security Instrument, occurs. Charges such as an origination fee, mortgage insurance premiums, closing costs and/or servicing fees, if applicable, may be assessed and will be added to the loan balance. As long as you comply with the terms of the loan, you retain title until you sell or transfer the property, and, therefore, you are responsible for paying property taxes, insurance and maintenance. Failing to pay these amounts may cause the loan to become immediately due and/or subject the property to a tax lien, other encumbrance or foreclosure. The loan balance grows over time, and interest is added to that balance. Interest on a reverse mortgage is not deductible from your income tax until you repay all or part of the interest on the loan. Although the loan is non-recourse, at the maturity of the loan, the lender will have a claim against your property and you or your heirs may need to sell the property in order to repay the loan, or use other assets to repay the loan in order to retain the property. ©2021 Reverse Mortgage Funding LLC, 1455 Broad Street, 2nd Floor, Bloomfield, NJ 07003, 1-888-494-0882. Company NMLS ID: #1019941. For licensing information, go to: www. nmlsconsumeraccess.org. Arizona Mortgage Banker License #0927682; Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act; Loans made or arranged pursuant to a California Financing Law license; Georgia Mortgage Lender Licensee #36793; Massachusetts Mortgage Lender License #ML1019941; Licensed by the New Jersey Department of Banking & Insurance; Licensed Mortgage Banker-NYS Department of Financial Services-in-state branch address 700 Corporate Blvd, Newburgh, NY 12550; Rhode Island Licensed Lender. For California consumers: For information about our privacy practices, please visit https://www.reversefunding.com/privacy. Not all products and options are available in all states. Terms subject to change without notice. Certain conditions and fees apply. This is not a loan commitment. All loans subject to approval. L2571-Exp042020_v082021Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12
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